Seeking Higher Ground – Learning from the Survivors
Just over three years ago, when Target announced the closing of its Canadian stores after only a year of operating in the country, many industry experts declared the onset of a “retail apocalypse.” They weren’t necessarily wrong in their aggressive prediction, as major chains have drastically scaled back store counts since then and dozens of large U.S. retailers have filed for bankruptcy. Meanwhile, North American malls have seen unprecedented vacancy rates. However, what many have come to realize is that this was the just the start of a major transformation—not the end of retail.
Today, we see that the so-called retail apocalypse hasn’t been nearly as devastating as people feared. A handful of retailers marked for closure have impressively persevered, not only surviving in a challenging environment, but making a noticeable comeback. What did they get right that their late counterparts failed to realize or act on? And what lessons might they have for today’s set of struggling retailers?
- Smaller Store Footprints/New Formats:
Several retailers have reported increased productivity after developing new, smaller formats. These survivors have downsized stores while adding key services (such as buy online, pick up in store), a stark departure from the formerly popular strategy of investing significantly in larger flagship stores. By reducing square footage and offering services, retailers are taking a page from retail startups that use physical storefronts primarily as showrooms to drive shopper traffic online, reducing their rent expenditure in the process.
- Operating Improvements to Drive Reinvestment:
The capital expenditures required to remodel or upgrade stores formats have often been funded through operational improvements. Retailers that reinvested a portion of that savings into new/advanced capabilities and new store formats contributed to their own success. If they had held significant debt that they needed to pay down or had financial covenants to meet, they would not have been able to repurpose a portion of their earnings for renovations.
- Refocusing on Target Markets and Increased Personalization Efforts:
Retailers chasing sales and looking to cater to customers’ preferences in a changing market have often cast their nets a little wider in an attempt to capture a much broader target market. But that risked diluting their message and appeal with lackluster products, overly broad assortments and mass marketing messages at a time when consumers were craving a personal approach. Other retailers have seen more success by redefining or refocusing on their target customers and refining merchandising and marketing strategies to better resonate with them. Rather than ambushing an increasingly mobile-focused and digitally savvy customer base with multiple messages, these retailers have leveraged shopping behavior data to create more focused and relevant touchpoints both online and in stores.
- Recalibrating Real Estate Strategies:
Along with downsizing or transforming store formats, retailers have been taking a hard look at underperforming stores. Many companies saw their e-commerce sales grow during the retail downturn, prompting them to consider the best store model to support those sales. Some took a lesson from the online players that have entered the brick-and-mortar market, and became far more strategic and selective about real estate, closing locations that no longer fit their strategy and rightsizing their store fleets.
Many of the retail companies that have overcome dire circumstances have succeeded not by viewing the past few years as a temporary period during which to seek refuge, but by changing with their customers. For retailers whose futures are now called into question, their fate depends on their ability to learn from these Cinderella stories and make a true transformation of their own on higher ground.